AN ANALYSIS OF THE DIRECTORS’ DUTY TO ACT IN THE BEST INTERESTS OF THE COMPANY, THROUGH THE LENS OF THE BUSINESS JUDGMENT RULE

Abstract

Directors are required to exercise their powers and perform their functions in good faith and for a proper purpose with the overarching promotional purpose being the best interests of the company. This is a fundamental duty which qualifies the exercise of any of the powers which the directors in fact have. The business-judgment rule provides the circumstances in which the duty to act in the best interests of the company (and the duty of care, skill and diligence) will be satisfied by a director. The main purpose of this article is to examine the meaning, nature and extent of the director’s duty to act in the best interests of the company through the lens of the business-judgment rule. The duty to act in the best interests of the company will be considered in two different contexts, firstly as a phrase with the emphasis on the meaning of the word “interests” and “company”; secondly, as a “standard of directors’ conduct” which will focus on the duty’s link with the rationality criterion. In order to achieve the purpose of the article and due to the fact that the Companies Act 71 of 2008 partially codifies the fiduciary duties, the statutory interpretation of the standards of directors’ conduct provision will also be considered. This will enable the research to properly interpret and analyse the relevant provisions in light of the common-law principles. Lastly, the research will identify categories of conduct that may not constitute good faith, thereby indicating that the rationality criterion will not be satisfied.